Archive for May, 2014

What would happen if you became too ill not only to go to work but to do basic everyday activities like shopping and cooking? What would happen if this wasn’t just for a few days to get over a bad cold but weeks or months? Hopefully this won’t happen, but you need a financial plan in place in case it does.

Peace Of Mind Is Beyond Price

Money can’t buy you health but effective money management can stop poor health from having devastating consequences. In today’s environment there is growing awareness of the importance of managing family finances so that not only do ends meet but that there is also a cash cushion to protect against the impact of redundancy and potential spells of unemployment.

It is, however, important to understand that the impact of critical illness is far more extensive than that of unemployment on its own. Not only do sufferers not have a job, they may realistically have no capacity to take up employment until their health improves. In fact, they may need to employ people to help with everyday tasks or to spend money adapting their home to adjust for their condition.

Stop Illness From Crippling Your Future

It’s dangerous to assume that benefits from an employer or from the state will be sufficient to tide you over a period of illness. If there is a shortfall then it is very easy to start getting into debt (or to be unable to repay existing debts). This can lead to issues such as a poor credit rating or even bankruptcy, either of which can have a brutal impact on your future employment prospects. It is therefor crucial to check exactly what level of cover you already have and to take action promptly if it becomes clear that this cover is likely to be insufficient. As this can be a challenging exercise and could be hugely important to your future, it may be best to get professional advice from a financial adviser.

Critical Illness Can Be Managed

Like many adverse situations, planning ahead can help head off the worst of the damage. The first step is to understand what your potential liability might be, i.e. how much money would you realistically be likely to need in a period of critical illness. This means not only looking at the current cost of your essential outgoings, but at the cost of employing someone to assist with essential tasks. It’s also useful to consider potential wants. For example employing a private nurse might be more palatable than spending extensive time in a hospital, but, of course, this comes at a price.

With this in mind, many people opt for critical illness insurance, which is a type of insurance which pays out in the event that the holder is diagnosed with one of an agreed range of serious illnesses. Unlike other types of insurance, the money may be used at the holder’s discretion rather than for a specific expense such as a mortgage repayment. Some critical illness policies offer additional benefits such as life assurance. As policies vary widely in their details, such as what illnesses they cover and the specific form of the pay out, it’s important to find the right one for your individual situation. Again, financial advisers can offer help with this.

By definition insurance is something you hope you’ll never need. If you do need it, however, then the value of a good policy, backed by a good insurer, becomes obvious. This is particularly true of life insurance where claims are made as a result of a bereavement. There are three key points to look for when trying to identify the best life insurers.

Financial Position

Small can be beautiful as long as it’s backed by strength. Put quite simply in the event of making a claim, you want to be sure that having taken your premiums, your insurer will actually pay and pay reasonably promptly. This is important for any claim and all the more so if you would like some or all of your benefit to be paid as longer-term income rather than as a lump sum.

It’s also worth understanding a company’s pedigree. Has it been spun off from or absorbed by a larger company? How long has it been in business overall and how happy are its shareholders/investors. In short, you should expect an insurance company to demonstrate the sort of good money management you apply to the family finances. If this sounds complicated, then an experienced financial adviser will be familiar with companies as well as products and will be able to point you in the right direction.

Flexibility And Diversity

Although all life insurance essentially boils down to a choice of an open-ended life policy or a term-assurance policy, there are a variety of other options available to tailor them to suit. These include guaranteed rates (keeping your premiums the same over the whole term/lifetime of policy). The ability to vary terms can also be useful. It allows you to adapt your policy to your changing needs without having to start again from scratch. Likewise the ability to vary the sum insured can be helpful, for example it can be reduced in stages as a mortgage is paid off. This can reduce the level of payments and allow funds to be diverted to other areas of a financial plan.

Customer Services

Two little words which can make a world of difference. Customer service isn’t just about being polite and helpful when you’re making a claim (although they certainly helps). There are some more concrete points to check. First of all, how quickly do they make a decision and offer a price? For people with very specialist requirements there may be a need for an insurer to take some time out to check if cover can be provided and if so how much it will cost.

For most people however, companies should be prepared to give a prompt answer along with a price. Once a decision has been made, do they offer cover during the underwriting process? This is a fairly standard option, but it is not universal so it pays to check as the process can be quite lengthy. Do they offer annual statements? These can be a very convenient reminder to double-check that your cover is still appropriate for your needs. Do they have a telephone number? If so how helpful are their agents? If not, what contact options do they have and how efficiently do they work?

It was announced a few weeks ago that wages rose faster than inflation; a statement that coincided with the news that house prices increased on average by 1.9 percent across the country and unemployment continued to fall.

All of this is welcome news and long overdue; as a nation we’ve struggled through six long difficult years since 2008 and whilst many are still cautious about the recovery, the signs are that it will continue.

The economic crisis in 2008 was created by governments and their policies, and it was created by banks and the companies that audited them. But it was also created by us. The great crash of 2008 was caused by a decade of spending and borrowing on the part of the general public that probably has no precedent.

Now that the return to prosperity seems to have arrived, there’s a chance for all of us to do things differently this time, and to ensure that our own personal good fortunes can be more sustainable.

During the Great Depression in the 1930s the economist John Maynard Keynes argued that governments should operate a ‘counter-cyclical’ policy, meaning that they should save during the times of surplus and spend those savings during times of dearth.

This meant that upswings never became unsustainable booms, because the government taxed wealth in order to save it, and then they could spend their way out of trouble during downswings.

There is much to be said for this common sense approach, and even the Chancellor George Osborne has pledged to run a budget surplus by 2018. Whilst Keynes was writing primarily about what governments should be doing, there is no reason why we can’t take on his advice at a personal level.

This suggests that the next few years for all of us need to be about employing a counter cyclical mind set and making simple, prudent decisions that will future-proof ourselves financially, not just for years but for decades. As the Chancellor put it recently, we need to ‘mend the roof while the sun shines.’

In too many instances in the decade 1998 to 2008, people were encouraged to believe that the good times would never end and that the low prices that globalised manufacturing could bring, along with an artificial housing boom would continue to deliver magic money.

Our sobering economic experiences, which have lasted longer than the Great Depression itself, have indicated otherwise, and there can be few illusions any more about how long the good times will last if we are careless. Here, then are some simple rules for a more sustainable future.

Property

Britain’s economy is largely based on housing, and the property market is one of the most powerful forces pulling us out of recession. If you have decided to move recently or are hoping to add value to your property through a re-mortgage, you have to think of your decision as a key aspect of your long term prosperity.

New banking regulations being introduced this month will make it very hard for you to over extend yourself to the unsustainable levels of 2008, and if you want to borrow more ambitiously, you will need to prove that your finances have a clean bill of health.

This seems like a painful imposition, but in reality it is timely and necessary as the country gets ready to indulge in a frenzy of house buying and selling (Britain’s favourite obsession). Preventing a significant percentage of the home owning population from defaulting en mass the next time the economy runs into trouble could be one of the real golden legacies for the government.

If you have your eyes set on a dream property that will require excessive borrowing to afford, it might be the moment to ask whether it is worth saddling yourself with potentially unmanageable debt? The property has to be something that works for you, not the other way round, meaning that it needs to appreciate in value and (obviously) be a nice place to live, instead of simply it being somewhere you slave all day to afford.

Not only does this make sense in the immediate term, but also in the longer term too. Remember, when the storm hits again (and one day it will, rest assured), the ones who weather it will have assets and the ones who don’t far too well will be saddled with liabilities.

Savings

In the last budget the government announced that it would be raising the upper limit on ISAs to £15,000 from July 2014, allowing you to save far more each year without HMRC taxing the interest. In addition to this, the entire amount saved could be cash, whereas previously half had to be in stocks and shares.

To say that this has been welcome news by the savings industry is something of an understatement, and for individual savers it presents an excellent opportunity to see more returns on their wealth. Remember Keynes big idea? In a very subtle way the government is encouraging all of us to emulate his thinking and set up our own counter cyclical policy.

By saving in a regular and sustainable way and getting into the habit of tucking a little bit away each month, preferably somewhere like an ISA that is tax efficient, we can do wonders for our own financial stability. Not only could savings eventually go into sound investments like property in the future, but it is our insurance against tough times.

This all sounds rather obvious, doesn’t it? It bears repeating however, that because so few people between 1998 and 2008 saved at all, in fact quite the opposite occurred, and a relaxed credit environment led to a level of personal indebtedness of staggering proportions.

Debt

This one is simple. Pay it off as quickly as you possibly can. There is no one thing more injurious to financial health than borrowing, and if financial good times are about anything, they are about freeing yourself from this burden.

Credit cards, store cards, personal loans, and hire purchase agreements collectively represent the biggest threat to your future financial stability. In 2009, when the economy really took a nose dive, it was personal debt that was one of the first things that lenders called in, with countless customers desperate to appease ever growing queues of creditors.

There are some instances where borrowing is prudent, such as a purchase of a house or an investment in a small business, or a career development loan, but in most other instances it is a luxury that perhaps we as a society can ill afford. As a culture, most of our ideas about borrowing were formed back in more stable times (i.e. the 1960’s).

Back then the lender was more prudent and kindly and who one could meet in person and who would advise you on what you could afford to repay; in effect he acted as a brake on the system and offered advice how much to borrow.

Since the 1980s, the lending arms of certain business have not acted as advisory services so much as they have become salesmen, operating from call centre’s and looking to sell you their products (in short, to increase your personal indebtedness to them as much as possible).

Also borrowing was always predicated on the assumption that future personal financial stability was assured and that all of us would gradually become better off over time. Even though we are experiencing good times again now, there is no indication that these will last forever and it is vital that should there be another down turn, you can face it debt free.

It is true to say that we live in a very different financial world to the one we left in 2008, and most likely things will never be quite the same again in terms of our attitudes towards money, spending and saving.

This may be an unqualified good thing, as a lot of those attitudes and beliefs about money were long past their sell by date and resulted in a lot of financial pain. The past half decade has taught us some serious and challenging lessons about money and debt and now that the economy is starting to improve, we have to put those lessons into practice.

If you are thinking about getting financially fit now that the worst of the recession seems to be over, it might be an idea to see an independent financial advisor who can help you look at how you manage your money and suggest ways to make it work for you.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Auto-enrolment in a workplace pension is now a reality. Between 2014 and 2018 companies with eligible employees will have to enrol employees into a workplace pension. Initial enrolment is mandatory; however employees do have the option to “opt out” from the scheme. Whether or not this is the best course of action will depend on each individual’s circumstances. There are, however, key questions that everyone should ask their employer.

What Is Opting Out?

If you opt out within the first month of your employer enrolling you, you’ll get back any money you’ve already paid in. If you opt out later than this, you may not be able to get your payments refunded. These will usually stay in your pension until you retire.

What Is The Process For Opting Out?

When your employer enrols you in a workplace pension, you can choose to opt out. If you want to do this, your employer will provide you with contact details of the pension scheme provider. They will tell you how to opt out.

What Is The Process For Opting Back In?

You can start paying into your employer’s workplace pension again. You need to write to your employer to request to be re-enrolled. Your employer has to accept you back into their workplace pension, but only once in every twelve month period.

When Does Automatic Re-Enrolment Start?

Under current rules, you will be automatically re-enrolled every 3 years. This could be a good opportunity to get some unbiased advice on your financial situation and review your financial plan for retirement.

Will You Be Part Of NEST?

NEST is the National Employment Savings Trust. In essence it is a tool to facilitate the provision of workplace pensions. Employers can choose to use it to manage all aspects of their pension scheme. When they do so, savers can access all relevant details from an online account. Employers can also choose to use an approved scheme from a different pension scheme provider.
Where Is My Money Invested?

The pension scheme provider will offer a choice of funds and it is important to ensure that you pick the best option for you. Different investments carry different degrees of risk. It is therefore crucial to pick the one which strikes the right balance of risk and reward for your personal situation.

What Are The Charges?

The more money goes towards charges, the less goes towards investing for your future. That being so; funds with higher charges should have a clear justification for them. Whichever provider your employer uses there may still be different charges for different funds.

Do You Use Salary Exchange?

Salary Exchange means an employee agrees to give up part of their salary equivalent to the contributions made to a workplace pension. In return, the employer agrees to increase the employer pension contributions to the pension scheme by the same amount. This means both the employee and employer will pay less National Insurance since this will be paid on the reduced salary rather than the full salary. This arrangement requires the agreement of both parties. It cannot be forced on employees.

Do You Use Postponement?

Postponement allows employers to defer auto-enrolment into a workplace pension for up to three months For example: The employer may have temporary or short-term staff that will cease employment within the postponement period. The employer must write to any member of staff whom they postpone to tell them.ment